Archive for the ‘Small Business Finances’ Category

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Where Should I Go To Get My Taxes Done?

April 16, 2012

This is a question I get asked a lot by friends, clients and other entrepreneurs. I have an easy answer for my clients: Mike. I’ve known Mike since my Coopers & Lybrand (now PwC) days. He’s honest, dependable, smart and fair-priced. If a client were to get audited three years from now, I know he’s still going to be in business. He’s going to stand by his work.

When a new client asks me, with a tilt to her head, “Is he…creative?,” I say “On a scale of 1 to 10, Mike is a 5.” What I mean by that is that he’s a middle of the road guy. He’s going to get you the tax deductions you deserve but he’s not going to stretch any rules too far, make anything up or do any funny math. And I believe that’s just the kind of tax preparer you want.

My staff asked me to focus this blog on how to maximize tax deductions; to share some secrets and tricks. The truth is, it doesn’t work that way for “the 99%”. (More accurately, probably 90%) For low and middle income wage earners that don’t own a home, the deductions are fairly standard, pardon the pun. For home owners, there are more deductions, but they are still fairly standard: interest, property taxes, etc. As your income rises, it’s likely that there are more opportunities as you’re likely spending money in areas that are indeed deductible. But I’m not talking rising from $40,000 to $80,000. I’m talking rising well into the six figures.

For consultants and small business owners, it’s a bit more complex, but not much. Deducting office supplies, employee’s payroll and auto mileage isn’t rocket science. If you spend money on your business, it’s most likely deductible.

I think many business owners suspect they’re missing out. They suspect that if they had the RIGHT tax preparer, they would maximize their deductions. That myth gets perpetuated by radio commercials that inform us we’re missing out if we don’t incorporate and by home-based business experts that declare you can deduct the cost of your dog because it protects your home office. Really? I suppose it could be argued, but I wouldn’t want to sit across from an IRS officer trying to explain why I wrote off dog food, unless I was a professional breeder.

The simple truth is that, until you amass significant wealth or own complex businesses, the choices for tax preparation are fairly simple. They boil down to software like Turbo Tax, retail tax preparation companies like H&R Block, or choosing a tax professional ranging from an Enrolled Agent to a Certified Public Accountant to an attorney that specializes in taxation.

And here’s my opinion of the options:

Turbo Tax (or any other reputable tax software):

Pros – This is a great option for those that are comfortable with computers and don’t have any situations that are too complex such as multiple businesses, uncommon deductions or specialty credits. I often recommend this as the best option for someone who is newly in business, but only when I’m certain the person will use the power of Turbo Tax and not just blow through it as quickly as possible. The value of Turbo Tax for a new business owner is that when you follow it down the paths of its questions, it then educates you on the convoluted rules of business deductions. It synthesizes the 72,000 pages of tax code into user-friendly questions, and then, if you ask, it tells you the rule behind the question.

Cons – There is no human review function. For my clients that use it, I glance at their return before they send it in. An educated second set of eyes is always good practice, whether using Turbo Tax or a $300/hour tax accountant.

H&R Block (or any other reputable retail tax preparation company)

Pros: The cheery green and white balloons you’re greeted with.

OK, seriously. I must admit I’ve previously disparaged this option because I believed H&R Block to be mostly staffed by intermittent near-minimum wage employees. But I’ve changed my perspective over the past few years. I’ve had the opportunity to work with a long-time H&R Block tax preparer who knows her stuff and has handled one of my clients with some complexities very well. H&R Block also has a solid training and review process in place. If you don’t have the time or inclination to use Turbo Tax and have a typical tax situation, H&R is a smart and economical choice. (Many tax accountants will disagree with me, but that’s my opinion based on years of listening to others experience.)

Cons: Most of their storefronts close for over half the year. If you’re a business owner, I believe there’s great value in checking in with your tax accountant a couple of times throughout the year. That’s not possible when they aren’t there.

Enrolled Agents, Certified Public Accountants and Tax Attorneys:

There is a wide gamut of professional options to getting your taxes completed. They can run anywhere from $50 per hour to $500 per hour, and more. I’ve seen really good ones in each of the categories and really bad ones. There are some qualities that are important to find in your tax preparer:

  • For wage earners: do they talk to you and teach you about your options, do they ask questions about your life that might impact your return, do they return your calls and do they finish your return in a timely manner? How long have they been in business? If all they do is have you fill out a form and don’t have any meaningful conversation with you, find someone else.
  • For business owners: All of the above questions, with a much greater emphasis on education. Do they walk you through the honest decisions involved in corporate or sole proprietor status, or do they automatically tell you to incorporate…always a red flag. Do they connect with you a few times throughout the year to see if your profitability has significantly increased or decreased; a trigger that could potentially change your need to squirrel money away for a large tax bill on April 15th.
  • For high wage earners, individuals who own multiple businesses, and any other complex tax situation: The more complex your tax situation, the more you’ll benefit from a more experienced, more licensed professional. Decisions for this group are beyond the scope of this blog, but what I will say is, by hiring the right professional, you will almost always see a definite return on investment from the tax planning you receive. Joel Stein wrote a humorous article Joel Stein Has Four Accountants on Bloomberg Businessweek last week and he said it well: “What a higher-end accountant does is look a my financial situation holistically and think long-term.”

In the research for his article, he discovered that not all tax preparation options are equal. His remaining taxes due/refund ranged from $4,544 due, to $2,387 due to a refund of $469. That’s not including the $119,554 refund he calculated from TaxSlayer.com, surely an operator error.

What he clearly points out is that all the options are not equal, and who does your taxes can be an important decision. Over the years I’ve seen some horrible outcomes from some ‘great accountants.’ If your neighbor or colleague tells you about their really great tax guy (or gal) that always gets them a refund but they’re not really sure how, think twice before you bite. The after effects of tax accountants that push the envelope too far can be devastating. While the chances of you being audited are miniscule, the chances of one of the tax preparer’s many clients being audited are much greater. When the IRS sees a pattern with a tax preparer, they swoop in and look at the returns of his or her other clients.  I’ve seen perfectly upstanding, ethical business owners have back tax bills as a result of tax audits of this type, sometimes to the tune of thousands of dollars. And the tax accountants they used were seemingly ethical. They weren’t outright frauds; they just pushed the envelope way too far. And it’s the tax payer who is ultimately liable.

The final piece of advice I have, no matter who does your return: read it. It may read like Greek to you, but read it anyway. Every year, you’ll learn just a little more.

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Stacey Powell builds financial muscles at TheFinanceGym.com and shows off Financial Art at Facebook.

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Why Entrepreneurs Should Embrace Bank Transfer Day

November 11, 2011

Big Bank Little Business

In the first few months of working with me, clients get this advice: “move your banking to a small bank and develop a relationship with your banker.” Unfortunately, clients rarely take the advice. The reasons I’m given are everything from the obvious “I like the convenience of ATMs everywhere” to the inane “but I’ve been banking with them since high school.” Yes, you’ve been banking with them since high school, and you’ve had a business account with them for 20 years. Does anyone there ever talk to you? Help you? Advise you? I didn’t think so.

When I started seeing momentum building around Bank Transfer Day, I was excited. Not because I embrace the philosophy behind the movement, though I do, but because I knew that one outcome of the movement would be that thousands of entrepreneurs would end up in stronger, more supportive banking relationships.

Big banks do not support small business owners. They just don’t.

Whenever I see banking slogans, I imagine myself in a conversation with the president of the bank. So, Mr. Brian Moynihan, how is it that through banking with Bank of America, my service-based client with annual revenues under $500,000 will “get just what [he] needs for [his] business?“ And, Mr. John Stumpf, how is it that Wells Fargo will help my small not-for-profit client who is “working to build a successful business?“ When you go to Chase.com, they clearly delineate the playing field for you. Business banking is for those with revenues up to $10,000,000. Is your business nearing $10,000,000? If so, that’s great. Perhaps you should be banking at a big bank. But for the rest of us, the 99% of business owners if you will, we’ll be ecstatic when our revenues reach $1,000,000, or even $500,000. And until your business starts to approach those million dollar numbers, your banker is not likely to spend much time thinking about you, or even bothering to remember your name.

That is just one small reason I’m a huge fan of local banks and credit unions. My other three favorite reasons are:

  • Big banks have a revolving door for employees. Just when you get to know your bank manager, she’s promoted to some bigger branch or department and you’re left building another new banking relationship with another green bank manager.
  • Employees at small banks are given the latitude to make decisions and use their judgment. Employees at big banks rarely have the ability to override bank policies and procedures, even the most minor ones.
  • You matter. Even if your business is very small, a small business bank values you as a customer. There is almost always going to be an actual human being who truly wants your business.

The turning point for me, the moment that I became clear that all small businesses should be with a small bank, was when I learned first hand what my favorite Manager at PriceWaterhouseCoopers once told me: “Being a bank manager at a big bank is akin to being a manager at McDonalds. You have very firm policies and procedures, and it is your job to ensure that they are followed. There is no room for judgment or reason.”

I had seen this play out with clients in my first few years of advising small business owners. I’d have conversations with their bank managers about some decision that didn’t make sense, one that was hurting my client’s cash flow or ability to borrow. There was always a policy behind the decision. It was annoying, but I’m a big fan of systems so it generally made sense and I learned in those first few years that you can’t budge a big bank.

And then something happened with my business at my big bank. I made a mistake. I deposited a very large check into the ATM. I knew better. I was in a hurry and wasn’t thinking. And the minute that happened the time clock went off on a 14 day hold. But I needed the cash in 7 days. It was the experience of talking to the branch manager and department heads who could have reversed the hold (they knew the check had cleared) that implanted in my mind, I will never bank at a big bank again.

I moved to Sacramento’s River City Bank. I am a tiny client there, as are a number of my clients. The reason why all entrepreneurs should move to a small local bank or credit union is this: at River City Bank, when one of my clients needs something to happen that is outside of the bank’s policies and procedures, I can pick up the phone and talk to my bank manager. She knows me. She’ll talk to me. She can’t always override a policy, and I wouldn’t expect her to. But she does always explain the reason for the policy, talk through options, and in instances where it has made sense, she’s overridden policies and assisted clients with their banking needs. I have newer client who also banks with River City Bank, but their reserve funds are at ING.com. When I asked why, they said that their bank manager advised them to move their funds to ING.com; that the rates were better at that point in time. River City’s bank managers have done, as have other local bank managers, what I have never seen a big bank do: “gotten my clients just what they need for their business“ and “worked with them to build successful businesses.”

That is the kind of service you should expect from your banker. And that is why, political reasons aside, you should make a smart business decision to participate in Bank Transfer Day.

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Stacey Powell builds financial muscles at TheFinanceGym.com, creates financial clarity at CreatingAnswers.com, and shows off Financial Art at Facebook.

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Throw Your Spending Plan Out The Window

August 10, 2011

In “Entrepreneurship and Making ‘Adult’ Financial Decisions” I Told the Truth about why I wasn’t at the eWomen Network Conference this year. And I outlined a spending strategy I had developed with a client:

“One of my favorite clients loves conferences and trainings; she has about $4,000 annually in her spending plan. She wants to spend more, but her business’ budget doesn’t allow for it. We developed a profit-splitting plan that puts a percentage of her business’ net profits into a savings account titled “Business Investments.” She doesn’t have to spend that money, but when a conference pops up that she wants to attend, she no longer has to discuss it with me or agonize over the pros and cons of the decision. If the money is in the reserve account, she goes.”

Best laid plans. While she was away at the eWomen Network Conference I received a text from her:

 

There are a lot of gurus out there selling marketing, sales and mindset training/coaching programs. Entrepreneurs invest hundreds, thousands, and tens of thousands in these programs. The potential and possibility of learning from someone like Lisa Sasevich can be irresistible, and in the moment of making the buying decision, it’s challenging at best to separate logic from emotion.

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Entrepreneurship and Making ‘Adult’ Financial Decisions

July 7, 2011
Adult Financial Decisions

When I launched on Forbes.com I promised myself that I was going to start Telling the Truth. It’s easy to be a financial guru, talk at people, and tell them, “This Is How You Should Handle Your Money.” It takes more courage to be transparent and share stories not just from our clients, but from ourselves, and even more courage to share not just from our past, but from our present. So here I am, being courageous.

Every summer I head to Dallasfor the annual eWomen Network Conference. I look forward to it all year long. It’s the largest business women’s conference in North America, and an amazing place to learn, connect and be inspired. Sandra Yancey, CEO of eWomen Network, provides the incredible opportunity to learn from a long list of business rock stars: Michael Gerber, Tony Hsieh (zappos), Robert Stephens (Geek Squad), Lisa Nichols, Zig Ziglar and the list goes on. This summer, I’m not going.

What’s an ‘Adult Financial Decision’?

Adult financial decisions are logical decisions—ones we intuitively know are good decisions even though every other part of our being disagrees. When we make adult financial decisions, our inner child screams, “But I wanted that!” or our lips pout or our hearts feel heavy. Last month I made the adult financial decision that my team was not going to the conference this year. As a result, I’ve been walking around pouting and having a heavy heart. And then I heard a voice shout: “Stacey, how many hundreds of times have you advised people who were conflicted about when and how much to spend on professional development??? Stop being a weenie and write a blog.”

Entrepreneurs make the assumption that they are the only ones making emotional spending decisions. “If I just ran my business more like a business owner, I don’t think I’d have these cash flow issues.” The truth is that entrepreneurs are human beings, and most of us humans make emotionally-based financial decisions. That’s not a bad thing. It’s when we don’t balance emotionally-based decisions with logical ones that imbalance can capsize our ship. Over the past year, my business has made a number of bold spending decisions, some logical, some emotionally-based. We’ve also pruned our client tree (let a few clients go who were no longer a good fit). The end result is that our reserves are at low tide.

Could we go to the conference? Yes. Do we have the cash? Yes. Would there be consequences? Yes. Is it worth the consequences? Logically, no.

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3 Words to Small Business Success: Easy, Fun and Popular

June 8, 2011

What’s the attitude you show up to in your business each day?

Are you having fun?

Does it lift your spirit to connect with those you need to connect with to be successful in your business?

In my blog Community Service, Leadership and Small Businesses, I told the story of how my best friend Tina Reynolds, long-time small business owner of Uptown Studios, uses her love of community service to drive the marketing for her business. I met Tina 15 years ago, when she was doing volunteer work for a local HIV/AIDS service organization, and through the years I cannot begin to recall how many organizations, actions and activities she has led or been part of. Her dedication and stamina for community service are unparalleled, and as a result she frequently receives awards, honors and nominations.

At this week’s California Small Business Day, she was honored by California’s Senate President pro Tem Darrell Steinberg as the Capital Region’s Small Business of the Year. Senator Steinberg made an excellent choice. From the vantage point of a best friend I’ve watched Tina’s business grow, and then sputter, and then grow again. I’ve watched her maneuver through the economic challenges of the past few years, always with a positive attitude.

So how exactly do you get to be a Small Business of the Year? What makes Tina and her business stand out as a role model for entrepreneurs? To use Uptown Studios’ tagline, be Easy, Fun and Popular.

Easy

In my Forbes Profile I write about blocks I’ve Been Around: putting $10 of gas in my car because that’s all I had. This was years ago, so I’m going to out Tina: she was the one I passed that $10 back and forth with. Sometimes I needed it; sometimes she did. Entrepreneurship isn’t always glamorous. But Tina, no matter how challenging a client project or how tough a business issue she faces, always has a can-do attitude and exudes to her staff and her clients that it’s easy. “Let’s just jump in and get it done.” And to persevere as an entrepreneur while enjoying a personal life, having an “It’s Easy” attitude is vital.

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How You Do Your Money…

May 24, 2011

…is how you do the rest of your life.

I was talking to a yoga teacher about a friend of hers who was having money problems. Actually, he had been having money problems for most of his life. She told me that there is a saying in yoga: “How you do yoga is how you do the rest of your life.” In my years of working with others around their money, I’ve found this to be equally true: “How you do your money is how you do the rest of your life.”

If I gave you a list of all of the clients’ businesses and professions that I’ve ever worked with, and asked you to select which one of those clients was, by far, the most at peace with his or her financial past, present and future, you would never select the right one. If I gave you a list of all of their gross revenues, you would never select the right one. If I gave you a list of their net profits, you would never select the right one.

But, if I gave you a list of other attributes of each of these clients, it would be clear to many of you which is most at peace.

Do you have set work hours, take regular vacations, fund your retirement every month, pay yourself a steady salary, don’t draw additional money from your business, have proper insurances in place and utilize appropriate professional advice? In your personal life, do you eat well, exercise, and balance playtime with responsibility time? How do you do the rest of your life? Does it look like how you do your money?

I’ve learned a lot from this client. How did she come to be at peace? Consistency, and years of it. Paying a little extra on her mortgage every month, no matter what. Funding her retirement every year, no matter what. Using business debt very carefully and cautiously.

What could you do, in your life, to be at peace with your money?

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Stacey Powell, creating more financial clarity at CreatingAnswers.com, tweeting at @CreatingAnswers and showing off Financial Art at Facebook.

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The Power of Stating your Intentions Out loud

May 11, 2011
Amgen Tour 2009© waynepowellphoto.com

Amgen Tour 2009© waynepowellphoto.com

Tomorrow I leave on a 330-mile, 4-day cycling adventure: the NorCal AIDS Cycle. I’m a little impressed with myself. “Athletic” is not a word frequently used to describe me. As a kid, I wasn’t picked last for team sports, but I was never picked first. And until three months ago, I had never cycled more than 10 miles at a stretch. My last training ride was an easy, fun, quick 30 miles. I have good reason to be self-impressed.

Do you have a big financial goal? Something that feels unattainable, that you can’t see yourself ever reaching? Would you like to be self-impressed?

Say it out loud.

When I first uttered that I was considering the ride, it wasn’t a fully formed thought. But I’d said it out loud, first to a friend that serves on the Ride’s Board of Directors, and then to my daughter, and then to a best friend. It snowballed from there. My daughter wanted to do the ride with me, and then her godmother, and then a best friend, and then a client.

Ask for support.

One of my life’s intentions is to be physically fit. That’s not my sole reason for doing this ride; a long-time passion of mine is raising desperately needed funds for HIV/AIDS. But the ride was a goal that I could speak out loud, ask for support from my family, friends and colleagues, and be lovingly held accountable to completing my goal. The first $100 donation I received sealed the deal; there was no going back. Someone gave money in support of me. I was accountable.

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